With its team of industry sector experts, the US Commercial Service can help US exporters gain entry into the Indianmarket through market research reports, matchmaking services and advocacy programs.The Commercial Service has offices inNew Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, and Ahmedabad.To the best of our knowledge the information in this report is accurate - however readers should conduct their owndue diligence before entering into business ventures.You can visit us athttp://www.buyusa.gov/indiaor contact us atnew.delhi.office.box@mail.doc.gov

Chapter 1: Doing Business in India page 2Market Overview

India is a story of growth and opportunity. India’s sustainedgrowth of around 8% in 2008 and growing dynamism in severalof its regional markets have created wide and diverse businessprospects for U.S. exporters and investors. U.S. multinationalsare sold on India, and are expanding and deepening theirmarket penetration. U.S. firms with advanced and niche-market products and services are entering the market for thefirst time, or are replacing legacy distributors appointed in theslow-growth past with more capable and aggressiverepresentatives. Many smaller American firms have begun toview India as a top anchor market for their products andservices as well. The marked rise of U.S. exports to India, thedaily business press announcements, the rapidly expandingdemand for Commercial Service India matchmaking programsand due diligence services, and the many businessdevelopment trade missions visiting India all point to Indiabeing open for business.Economic growth in India today is being rewritten by India’shighly entrepreneurial and rapidly globalizing private sector.Indian firms are investing in infrastructure projects, growingtheir advanced manufacturing capabilities, and inventing innew volume-based business models that tap into risingincomes and consumption in towns and rural economiesacross the country. Whether it is consumer goods andservices, high technology and industrial goods, healthcare, orinfrastructure development, Indian firms are bullish about theireconomy and are eager for U.S. commercial and joint venturepartnerships, technologies, brands, services, and know-how.In fact, the pace of the America’s trade and investmentrelationship with India is accelerating. In 2007, U.S. exports toIndia surged 75% to an all-time high of $17.6 billion, whileexpanding only 12% worldwide. Advanced technologies,including aerospace, specialized materials, information andcommunications technologies, electronics and flexiblemanufacturing systems underpinned this growth. Indianexports to the U.S. slowed, growing only 10% in 2007. As aresult, America’s overall trade deficit with India dropped by45% to $6.4 billion. U.S. investments to India continued toexpand in 2007, up 40% to reach a cumulative $12.4 billion,while Indian investments in the U.S. were up 62% to $3.2billion. At this pace, it is possible that India could become atop-ten market for U.S. goods and services beginning nextyear and well into the future.In terms of long-range economic forecasts, some majorconsultancies project that more than 400 million people, a full40% of the population, will enter India’s middle class over thenext 15 to 20 years. One noted firm expects India to have andsustain the fastest growth rate in the world by 2011. Anotherwell-known consultancy believes that India will become the 3

rd

largest economy in the world in 2032. India’s “demographicdividend” (71% of the population is under the age of 35, andthe median age is 25) will ensure that that India retains strongproduction and knowledge-based competitiveness for manyyears to come.Though these numbers are impressive, barriers to trade andinvestment remain in India. Thanks to economic reformsintroduced in the early 1990’s, Indian tariffs have beenprogressively reduced. However, additional reform is widelyrecognized as necessary for continued economic growth atrecent levels in India, and it is anticipated. While poorinfrastructure and high tariffs present the biggest obstacles toforeign investment and growth, India’s infrastructurerequirements also present trade and investment opportunitiesfor American companies. Strategic planning, due diligence,consistent follow-up, and perhaps most importantly, patienceand commitment are all prerequisites to successful business.The Indian sub-continent necessitates multiple marketingefforts that address differing regional opportunities, standards,languages, cultural differences, and levels of economicdevelopment. Gaining access to India's markets requirescareful analysis of consumer preferences, existing saleschannels, and changes in distribution and marketing practices,all of which are continually evolving.India’s population, at 1.2 billion and growing, represents over15% of the world’s inhabitants. Squeezed into just 2.4% of theworld's land area, it ranks among the highest populationdensities on Earth. The annual population growth rate of 1.6%- or nearly 18 million people – per year, makes Indian, by andlarge, a very young population. More than a third of India’spopulation is younger than 15-years old, and more than halfare under the age of 25, which is India’s median age.

Source: India 2001 Census

India is a large continental market spread over an area of 1.3million square miles. Vast distances separate the mostpopulous cities. The urban population centers are widelydispersed and nationwide distribution is imperative for manyclasses of consumer products. Only about 30% of thepopulation lives in India’s 200 or so towns and cities, theremaining 70% live in more than 550,000 villages. Although in

terms of buying power urban India would rate higher, the ruralmarket has shown rapid growth in recent years. The mainreason for such growth, apart from awareness created byvarious media, is increased availability of products in ruralareas due to the adaptation of distribution channels to servethe needs of the rural market.

Problems with the country's roads, railroads, ports, airports,education, power grid, and telecommunications may be thetoughest obstacles for India’s economy to grow to its full potential.Nonetheless, a process of liberalization in these areas has beenunderway, led by a more liberal environment in the informationtechnology, airline, and telecom sectors, with increasing roles forthe private sector in ports, roads and other key sectors. However,the absence of a clear policy framework has hindered criticalprivate investment in infrastructure overall.

Slow Reform Process

AsIndia gradually opens up its markets, many tariff and non-tariffbarriers remain.Multiparty coalition governments since the mid-1990s have made some progress in this regard. However, theduties continue to be comparatively high which hamper India’sefforts to achieve its potential as a global economic power. Inaddition,India's customs tariff and excise tax system remainsconfusing and laden with exemptions. Further, heavilybureaucratic investment processes, poor IPR enforcement,government inefficiencies and corruption have also discouragedforeign investors. As a result, FDI has not grown to its full potentialand was only $15.7 billion in Indian fiscal year 2006-2007.However, Foreign Institutional Investors (FIIs) have a growingpresence in India with net inflows for India totaling around $16billion for the calendar year 2006.

Market Opportunities

Best prospect sectors and business opportunities.

Ranked onthe basis of estimated Indian imports from the U.S. for 2007, thebest prospects (in alphabetical order) for U.S. exports follow:

New business must addressissues of sales channels, distribution and marketing practices,pricing and labeling, and protection of intellectual property.Relationships and personal meetings with potential agents areextremely important. Due diligence is strongly recommended toensure that partners are credible and reliable.

Geographic diversity.

U.S. companies, particularly small andmedium-sized enterprises, should consider approaching India’smarkets on a local level. Good localized information is a key tosuccess in such a large and diverse country. The U.S.Commercial Service posts in New Delhi, Mumbai, Chennai,Ahmedabad, Bangalore, Hyderabad and Kolkata provideindispensable local information and advice and are well plugged inwith local business and economic leaders. Multiple agents areoften required to serve each geographic market in the country.

Market entry options.

Options include using a subsidiaryrelationship, a joint venture with an Indian partner, or using aliaison, project, or branch office.It is strongly urged that U.S. companies consider a regional plan,focusing on multiple locations and markets within India and findingthe appropriate partners and agents within each region.